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TABLE OF CONTENTS

Executive Summary ........................................................................................... 5 Introduction ........................................................................................................ 7

Chapter 1: Investment Climate........................................................................ 12 A. The Legislative Framework ........................................................................ 12 1. The Foreign Investment Act (1990) ....................................................... 13 2. Financial Institutions Act, 1993 .............................................................. 13 3. The Securities Industry Act, 1995.......................................................... 13 4. Insurance Act Chapter: 84:1 .................................................................. 14 5. Venture Capital Act, 1994...................................................................... 14 6. The Tourism Development Act, 2000 .................................................... 15 7. The Telecommunications Act (4 of 2001) ................................................... 15 B. Geographical, Socio-Political and Economic Characteristics ..................... 15 1. Strategic Location.................................................................................. 15 2. Sound Macro-Economic Framework ...................................................... 15 3. Good Infrastructure................................................................................. 16 4. Low Corporation Tax ............................................................................ 16 5. Low Energy Cost ................................................................................... 17 6. Skilled Labour........................................................................................ 17 7. Foreign Exchange Stability .................................................................... 17 8. Established Manufacturing Sector ......................................................... 18 9. Stable Political System .......................................................................... 18 10. English Speaking ................................................................................. 18 11. Access To Wide Array of Markets ………………..………………......…18 C. Regional and International Organizations................................................... 19

1. Caricom Single Market and Economy ................................................... 19 2. Cariforum EU/EPA................................................................................. 19 3. Association of Caribbean States............................................................. 19 4. Free Trade of the Americas .................................................................... 20

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5. World Trade Organization...................................................................... 20 6. World Intellectual Property Rights Organization .................................... 20

D. Treaty Obligations ...................................................................................... 21 1. Double Taxation Treaties....................................................................... 21 2. Bilateral Investment Treaties ................................................................. 21 E. The Incentive Regime................................................................................. 21 1. Fiscal Incentive Act................................................................................ 22 2. Corporation Tax Concessions ............................................................... 23 3. Approved Small Company..................................................................... 23 4. The Income Tax (In Aid of Industry) Act ................................................ 24 5. Import Duty Concession ........................................................................ 25 6. Profit Remittance and Capital Repatriation............................................ 25 7. Free Zones ............................................................................................ 26 F. Competition Policy...................................................................................... 27 G. The Investment Approval Process.............................................................. 27 H. Investment Promotion Agencies ................................................................. 28

Other State Agencies and Companies ....................................................... 28 1. The Tobago House of Assembly ........................................................... 28 2. Ministry of Trade and Industry ............................................................... 29 3. National Entrepreneurship Development Company............................... 29 4. Business Development Company Limited (BDC) .................................. 29 5. Venture Capital Incentive Programme (VCIP) ....................................... 30 6. Trinidad and Tobago Bureau of Standards............................................ 30

Chapter 2: The Way Forward: A new Approach to Investment Promotion and Facilitation ............................................................................... 31

Other Elements of the New Bill................................................................... 32 1. Definition of Investment ......................................................................... 33 2. Definition of Investor.............................................................................. 33

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3. Key Personnel ....................................................................................... 33 4. Incentives .............................................................................................. 33 5. Land Ownership .................................................................................... 34 6. Share Ownership................................................................................... 35 7. Transfers ............................................................................................... 35 8. Expropriation ......................................................................................... 35 9. Dispute Settlement ................................................................................ 36 Additional Elements of the New Approach ................................................. 36 1. Adding Domestic Value ......................................................................... 36 2. Earmarking Emerging Sectors............................................................... 37 3. Innovating Investment Promotion .......................................................... 38 4. Expediting the Approval Process........................................................... 39 5. Improving Training to Create Future Entrepreneurs .............................. 39 6. Focusing on Current Investors............................................................... 40 7. Enhancing Communication.................................................................... 40 8. Providing Finance for New Enterprise ................................................... 40 9. Participating in Conferences and Trade Fairs........................................ 41 10. Using Foreign Missions and other Foreign-Based Organisations.......... 41

Conclusion ....................................................................................................... 42

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EXECUTIVE SUMMARY

Based on this country’s exemplary success in creating a globally competitive petro-chemical sector, the “Trinidad and Tobago model” is a recognized brand among actors in the international petro-chemical economy. With projects already implemented in the sector and those to come on stream by 2010, Trinidad and Tobago has in place a platform, for the downstream manufacture of steel, aluminium and plastic products. The prospect of a twenty-first century industrial revolution in Trinidad and Tobago is therefore likely, and indeed expected. It is axiomatic, however, that oil and gas resources are finite. Consequently, the critical issue in respect of sustainable economic development becomes how to increase Gross Domestic Product (GDP) when oil and gas production begin to decrease. The solution lies in the sustainable development of the non-energy sector and, as a pre-requisite, the attraction of investment into this sector. Some fundamental questions to be asked include:-

• What is Foreign Direct Investment (FDI)? • Why is it important for developed and developing countries? • What factors influence the investment decisions of Trans National

Corporations (TNCs)? • How do you balance creating a FDI-attractive environment with maximizing

local content. • How do you rejuvenate investment promotion activity?

These are some of the issues examined in this document. In the Introduction FDI is defined, as generally “every kind of asset”, except assets not acquired in the expectation, or used, for business purposes. Trinidad and Tobago’s investment climate is described in Chapter 1 and the primary instrument in this regard, is the Foreign Investment Act of 1990. Other legislation includes the Finance Act, the Insurance Act, the Tourism Development Act and the Telecommunications Act. Chapter 1 also provides an overview of the country’s legislative framework, and its economic, geographical and socio-political characteristics. It is contended that these characteristics underscore the attractiveness of Trinidad and Tobago as a location for FDI and include: strategic location; sound macro-economic fundamentals; good infrastructure; low corporation tax; low energy costs; a skilled labour force; political stability; exchange rate stability; and English speaking population and access to a wide array of markets. Regional and international organizations to which there is membership; the incentive regime; the investment approval process; the state and company actors involved in investment activity; and the promotional agencies are also examined.

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Chapter 2 treats with the new approach to investment, namely:- Recommendations for the introduction of new, more comprehensive foreign investment legislation to replace the Foreign Investment Act, 1990. The elements of the new Bill not included in the 1990 Act are reviewed. These include national treatment; transfers, key personnel and dispute settlement. A number of measures to reprise the investment climate and rejuvenate investment promotional activity are also explored in this section. These measures include:

• adding domestic value;

• reserving sectors for national development; earmarking emerging sectors;

• expediting the approval processes;

• promoting joint ventures with foreign companies;

• improving training;

• enhancing communication;

• providing finance for new enterprises;

• participating in conferences and trade fairs, conducting foreign missions; and

• advancing investment promotion.

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INTRODUCTION

The general objective for the Government is to continue to provide an efficient and friendly investment framework. The current investment framework incorporates various pieces of legislation. These include, the Foreign Investment Act, the Fiscal Incentives Act, Income Tax (in aid of Industry) Act, and the Free Zones Act. The incentives regime is a major influencing factor in the investment climate and in this regard, the country can boast of a well-developed incentives regime. There are also specific institutions with responsibility for the facilitation and promotion of investments, such as Evolving Technologies and Enterprise Company Limited (Eteck), National Energy Company (NEC), Tourism Development Corporation (TDC) and the Ministry of Trade and Industry. The investment policy is intended to provide general principles and guidelines for investment as well as promote and encourage both national and foreign investments. Different promotion strategies are recommended for both types of investments. Domestic investment promotion strategies include;

• the identification and development of investment projects,

• facilitation of joint ventures,

• reservation of a number of services sub-sectors for nationals,

• improving access to financing and the communication of investment opportunities,

• provision of training to entrepreneurs, and

• the hosting of trade fairs and trade and investment conferences.

• FDI promotion strategies include;

• the identification and development of investment projects,

• the provision of opportunities linked to firms that are already established,

• the use of trade and investment missions,

• the hosting of trade fairs, conferences, and site visits for potential investors.

At the regional and global levels, the elements of the policy must also be compliant with prevailing regimes covering investments at the World Trade Organisation (WTO), and the CARICOM Agreement on Investment (CAI), which is currently being developed. The framework governing the CAI is the Revised Treaty of Chaguaramas, in particular, Chapter 3 of this Treaty which provides inter alia, for the right of establishment, removal of restrictions on the right of establishment, the provision of services, movement of capital and current transactions.

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Chapter 4 on Industrial Policy also contains provisions for the promotion of investment, measures relating to the services sector and the right of establishment. These provisions have influenced the determination of key elements of the new investment policy which includes principles such as the definition of investment and investor, dispute settlement, key personnel, transfers, and expropriation.

It is widely recognized that policies and behaviour play a significant role in shaping the investment climate. In an effort to develop the most appropriate policies in this regard, the Government’s objectives are: i. To encourage the sustainable growth and development of Trinidad and Tobago

through diversification of the economy;

ii. To ensure that Trinidad and Tobago has a facilitatory and investment-friendly environment;

iii. To encourage greater investment as part of the initiative of building internationally

competitive national firms;

iv. To foster balanced development within the country; and v. To provide a clear and transparent framework to facilitate investment Trinidad and Tobago adopts a broad definition of investment which includes generally “every kind of asset”, except assets not acquired in the expectation, or used, for business purposes.1 This is consistent with our commitments in our bilateral investment treaties (BITs) and the CARICOM Investment Code. The definition of investment also does not distinguish between domestic and foreign investment. The aim is to remove all bureaucratic and other impediments to investments and to create a regime that is transparent, predictable, and efficient. The focus is on facilitation and promotion, which would create a climate that encourages both national and non-national investments. Trough the promotional efforts the goal will be to encourage targeted inflows of capital which will allow the country to develop certain sectors, regions, and industries. While promotional schemes will target both national and foreign investors, the framework to be developed will ensure that the expected growth in FDI impacts positively on the efforts to encourage increased domestic investments. It has to be understood also that investments involve both risk and cost which make certain investments unattractive or beyond the

1 Forms that an investment may take include: (a) movable and immovable property as well as any other property rights such as mortgages, liens and pledges; (b) shares, stock, debentures and any other form of participation in a company; (c) money, claims to money or to any performance under contract having an economic value, loans only being included when they are directly related to a specific investment; (d) intellectual property rights including copyrights, patents, industrial designs, trademarks, trade names, technical processes, know how and goodwill; (e) business concessions conferred by law or under contract, including concessions to search for, cultivate, extract or exploit natural resources.

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capacity of national investors. If the country depended solely on its national investors, these investments would not occur. The total cost of not having an investment is greater than the actual financial cost since the social cost of not having the investment may mean among other things increased unemployment, lower exports, and decreased revenue. Accordingly, if an investment is targeted at potential growth sectors there will be a dynamic benefit to the economy. FDI can therefore play a major role in facilitating and accelerating the strategic shift for Trinidad and Tobago from a developing to a developed country. The advantages of FDI include the following:

• The provision of the level of financial investment required to be internationally competitive.

• The ability of TNCs can circumvent the disadvantages of small domestic markets by utilizing established international marketing networks.

• The expertise, technology and capital which foreign firms provide and which are required to succeed in the international market place.

• The high value activities and services that guarantee superior quality and which either meet or beat the best in the market.

• The necessary demand for certain resources or products which can be supplied locally, thereby increasing overall economic activity within particular sector.

Trinidad and Tobago has the highest FDI per capita in Latin America and the Caribbean. FDI has more than doubled from an average of US$209 million over the period 1990 -1993 to US$791 million in 2000 and US$808 million in 2003, an increase of approximately 262%. In 2004 Trinidad and Tobago recorded an inflow of US$988 million of FDI. Between 1998 and 2005, FDI as a percentage of GDP averaged 8.75%. Most of this investment however, has been in the energy sector. Central Bank statistics on non-energy FDI during the period 1998-2004 have not been impressive: YEAR US$

1998 - 132.2

1999 - 175.6

2000 - 65.8

2001 - 18.6

2002 - 52.5

2003 - 69.8

2004 - 59.3

2005 - 82.5

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As a consequence, greater effort is required in promoting the attractiveness of investment in the non-energy sector. The general aim of the Government` is to continue to provide market-friendly policies, clear transparent and non-discriminatory rules on business entry and exit, support innovation, promote a friendly business environment, reduce any obstacles to FDI, and continue to protect and promote FDI. The country will continue to benefit from the growth in the energy sector as a result of the expected increase in both gas and oil production. In this regard, the aim is to improve the regulatory, legal and fiscal framework in the energy sector; to maximize local crude oil production; to increase refining capacity; and to develop downstream natural gas-based industries. The Government also plans to continue the diversification trust by developing non-oil manufacturing activities. Other priorities include increasing the level of foreign and domestic investment, generating permanent employment opportunities, and promoting food security. These initiatives have resulted in the country maintaining its strong economic performance reflected in record levels of growth and low levels of unemployment. In 2005, the Trinidad and Tobago economy recorded its twelfth year of positive economic growth. GDP has increased from $51.4 billion in 2000 to $95.1 billion in 2005, and is projected to reach $114.5 billion in 2006.

Trinidad and Tobago is distinguished from many countries in the region by its oil and gas sector which has been most attractive to TNCs. It has been postulated that the strategic nature of hydrocarbons shields it from the impact of normal influencing factors as TNCs tend to invest in the sector, even under hostile circumstances. The circumstances in Trinidad and Tobago have been extremely congenial and the country has had no problem in the “monetisation” of the energy sector. The challenge for Trinidad and Tobago, therefore, has been to stimulate the attractiveness of the non-energy sector. The UNCTAD World Investment Report (1998) adumbrates three (3) broad factors as determining where TNC’s invest:

1. The policies of the host country (i.e. the extent to which an enabling FDI policy

exists);

2. The proactive measures countries adopt to promote and facilitate investment; and

3. The characteristics of the country economy. It is in this context that an investment policy, which has as its objective attracting FDI into the non-energy sector, is being proffered.

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The focus of Trinidad and Tobago’s investment policy will be to leverage the innate strengths of the country to position it as the preferred location for investors. Some of these strengths include:-

• Strategic geographic location,

• Educated workforce,

• Low energy costs,

• Access to a wide array of markets,

• Relatively diversified manufacturing sector,

• Sound macro-economic framework,

• Good infrastructure,

• English speaking,

• Guaranteed protection of investments through a number of Bilateral

Investment Treaties,

• Protection of intellectual property rights, and

• Foreign exchange stability.

The Government strategy for the economic development of the non-energy sector is predicated on, inter alia, the deepening of the integration process in the region, the pursuit of increased market access, the development of a market-friendly environment and the creation of a level playing-field for national firms. The strategy is being pursued through the creation of the CARICOM Single Market and Economy, participation at the WTO and African Caribbean Pacific/European Union negotiations, the development of a competition policy and the strengthening of trade and investment related institutions in the country, training of requisite human resources and re-structuring of relevant institutions.

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CHAPTER 1: THE INVESTMENT CLIMATE

UNCTAD contends that firms tend to prefer to locate in areas with stronger investment climates. The 2005 World Development Report describes the investment climate as the location- specific factors that shape the opportunities and incentives for firms to invest productively, create jobs, and expand. Factors such as stability and security, regulation and taxation, finance and infrastructure, and labour and human resource are identified as core areas determining the character of a country’s investment climate. This policy addresses these factors under three broad themes: the Legislative framework, the geographical, socio-political and economic characteristics, and the incentive regime.

A. THE LEGISLATIVE FRAMEWORK

Although the investment framework is largely governed by the Foreign Investment Act, 1990, there are other sector specific pieces of legislation which regulate investments. These include inter alia, the Petroleum Act; Telecommunications Act, the Tourism Act, the Finance Act 1993; Insurance Act; and the Shipping Act 1987. These various pieces of legislation impacts on the regulation of investments and in most cases they need to be updated taking into consideration, changes in the global environment as it relates to investments in the various sectors, the level of relevance to our socio-economic objectives and our plans to develop internationally competitive manufacturing and services sectors. The services sector generally provides greater policy space for governments since the liberalisation of this sector has not been as deep or as far reaching as the manufacturing sector. The liberalisation of the services sector is the subject of on-going discussions at the WTO and other trade fora. All countries possess certain restrictions in their services sub-sectors and the degree of liberalisation depends on the extent to which progress is made in the various negotiating theatres. In the case of Trinidad and Tobago there are horizontal restrictions that apply to all investments and in certain sectors particular restrictions apply. The level of liberalization of the country’s services sectors is outlined in the WTO Schedule of Commitments, which is attached at Appendix I.

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Relevant Trinidad and Tobago legislation include the following:- 1. The Foreign Investment Act (1990) The Foreign Investment Act, 1990 is currently the main regulatory mechanism governing investments. It was enacted upon repeal of the Alien Land Holdings Act. This Act was developed during an era of relative protectionism when the country’s trade policy was heavily based on the doctrine of import substitution. By the 1990s however, the operational environment was transformed into one of increased liberalization, which demanded changes to a legislative framework dealing with investments that would be more reflective of the prevailing demands, opportunities and challenges of prevailing international economic conditions. Given an international economic environment characterized by the globalization of trade and investment and in the light of the enhanced impetus to grow the non-energy sector, it is evident the Act needs to be updated. 2. The Financial Institutions Act, 1993 This is an Act to provide for the regulation of banks and other financial institutions which engage in the business of banking and other business of a financial nature. In 2004 based on the recommendations of the White paper on the Reform of the Financial Sector it was clear that this Act had to be amended in order to create a responsive and well-diversified financial sector that would be more effective in its contribution to the creation of diversified national economy. Weaknesses were identified in the legislative, regulatory and supervisory frameworks. The necessary legislative and regulatory reforms applicable to the banking sector and the Venture Capital Incentive Programme have been completed. and the reform process for the rest of the industry would soon be completed. It is envisioned that the total package of reforms for the financial sector will impact positively on the investment climate. The major impact, to emanate from a strong, diversified and expanding financial sector, is the increased pool of resources that would be available to fund increased investments in the country, especially domestic investments. 3. The Securities Industry Act, 1995 This Act established the Securities and Exchange Commission to provide for the regulation of the security market in Trinidad and Tobago. The White paper on the Financial Sector reform however, recommended the establishment of a single regulatory authority for all financial-related institutions. With the establishment of the Securities

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and Exchange Commission it meant that there were three different Regulatory Authorities, the other two being the Financial Institutions Supervision Department, which falls under the umbrella of the Central Bank, and the Commissioner of Co-operative Societies. In addition, it is hoped that reforming the Securities Act could address the challenge of encouraging the use of equity as a source of financing investments compared to the overriding bias towards debt. According to the White paper on the Financial Sector reform the issue of low market confidence also needs to be addressed. The aim is to encourage companies to list on the stock market and to view this option as one that would provide the necessary funds to expand and build competitiveness. 4. Insurance Act Chapter: 84:1

This Act is intended to revise and consolidate the law providing for the regulation of the insurance sector and privately administered pension fund plan. The Insurance Act of 1980 specifies that a minimum of 80% of the assets of pension funds must be invested in Trinidad and Tobago. The limit on equity investment is set at a maximum of 50% of a fund’s assets. Consideration could be given to revising this limit in relation to its impact on, among other things, equity investments. 5. Venture Capital Act, 1994 The Venture Capital Act of 1994, amended in 1997, and the Venture Capital Regulations of 1996 regulate the Venture Capital Industry. This industry is comprised of three venture capital companies (VCC) under the purview of the Venture Capital Incentive Programme (VCIP) with a combined issued share capital of $14.6 million. There are two other private venture or equity funds registered as issuers and are under the purview of the SEC. The Venture Capital Act was amended in 2005 to incorporate a number changes, such as:

• an increase in paid up capital with which a VCC can carry on a business

from 20 million to 100 million dollars;

• an increase in the equity limit of a qualiying investee company to fifty

million dollars;

• an increase in the range of investment instruments in which venture

capital companies may invest; and

• Removal of the restrictions on the type of shares that could be issued by venture capital companies.

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6. The Tourism Development Act, 2000

This Act is intended to facilitate the development of the Tourism Industry by providing to investors a package of incentives. Consideration may be given to revising this Act taking into consideration the urgent need to increase the room stock in the country by encouraging the expansion of existing hotels, and encouraging investment in new hotels. The supporting infrastructure related to the tourism sector also needs to be improved according to international standards.

7. The Telecommunications Act (4 of 2001) This Act is intended to provide for the regulation of telecommunications in Trinidad and Tobago. It is predicated on the need to establish a comprehensive and modern legal framework for an open telecommunications sector by permitting new providers of telecommunications services to enter the market and compete fairly. An internationally competitive telecommunications sector is major pillar of a friendly and facilitative investment climate. B. GEOGRAPHICAL, SOCIO-POLITICAL AND ECONOMIC CHARACTERISTICS

1. Strategic Location

Trinidad and Tobago lies at a strategic geographic location, the southernmost part of the Caribbean. The country is ten (10) kilometres from Venezuela, which places us at the gateway to the South American mainland. The major cities of North America are only a few hours away by airplane. This is a particular advantage, especially when viewed in combination with the number of trade agreements to which this country is a signatory, and creates a tremendous potential for the transformation of Trinidad and Tobago into an international centre for trade and transport. 2. Sound Macro-Economic Framework The Trinidad and Tobago economy grew at annual average rate of approximately 8.6%, over the last five years to 2006 and recorded a rate of 12%in 2006. This was almost

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twice the annual average growth rate of the global economy which grew by 4.5%2 over the same period. The energy sector was the major contributor towards this growth, followed by manufacturing, services and agriculture. Trinidad and Tobago’s medium-term economic prospects remain favourable and there are positive indications that inflation is being managed.

3. Good Infrastructure

Investment in developing the infrastructure is continuing and the aim should be to create a level of infrastructure that is comparable to the best in the world. Our ports especially need to be expanded and modernised urgently. There are three major sea ports at Port of Spain and Point Lisas in Trinidad and the other at Scarborough in Tobago. The country has two major airports, the Piarco International airport in Trinidad and Crown Point in Tobago. There is also a vast network of roads that traverses both islands which allows outlying areas to be connected effectively to the two major areas of business and administrative centres, which are the city of Port of Spain in Trinidad, and the Town of Scarborough in Tobago.

There are currently nineteen industrial estates which are managed by eTeck. These are strategically located in the east, central, and South of Trinidad, and one (1) in Tobago. The Tamana Technology Park located in the east of Trinidad, on completion would cater to high-value and high-technology manufacturing and services, academic input, and research and development. There are also plans for the construction of six (6) additional industrial estates at:

• Dow Village; • Reform; • Factory Road; • Endeavour; • Preysal; and • Debe

4. Low Corporation Tax The corporation corporate tax rate has been reduced from 30% to 25% and consideration is being given to reducing this even further given its importance as a factor in attracting investments.

2 According to IMF figures the average annual growth rate in the world over the period 2002-2006 was 4.5% in constant prices.

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5. Low Energy Cost Trinidad and Tobago has one of the lowest energy cost in the region. This continues to be a major attraction for many manufacturing entities. Commercial users currently pay approximately US$1.70 per million BTU for natural gas. In addition, there are over 620 kilometres of pipelines, which distribute natural gas directly to the manufacturing plants. This network of pipelines is expected to be increased in the near future. This includes a plan to build a pipeline directly to Piarco International airport which will be used to supply jet fuel at competitive prices. This project is envisaged as a major step towards positioning Piarco as an alternative Hub to Miami in accessing the Americas and also provides for the establishment of a repair and maintenance facility at Piarco. 6. Skilled Labour Improving the cadre of skilled workers is an important factor in developing a internationally competitive investment climate. An educated and skilled workforce impacts positively on the quality and quantity of investments a country can attract. There is also a positive relationship with the type of investments in a country and the quality of life of the country’s labour force. This understanding has fuelled the Government’s involvement in enhancing the training and education process to create a workforce to meet the demands of an expanding, sustainable, and diversified economy. The country currently has a high percentage of university graduates in various administrative, business, science and technical areas. Tertiary education is currently free to nationals and the Government has established two new educational institutions, the University of Trinidad and Tobago and the Council of Science, Technology and Applied Arts of Trinidad and Tobago (COSTAATT), to cater to the increased demands for skilled people. In addition, the Government sponsored, On-the-Job training programme has been instrumental in exposing young people to the demands of the working environment. For persons and/or companies involve in trade (as defined by the Income Tax in aid of Industry Law), an apprenticeship allowance is provided to encourage training which is equal to two hundred per cent of the wages actually paid to an apprentice. Further, the multi-skilled training programme (MUST)provides skill training for young persons to enter industry. 7. Foreign Exchange Stability The stability of the country’s currency relative to other flexible exchange rates in the region continues to be an attractive factor. The Trinidad and Tobago dollar has consistently maintained an exchange rate to the US Dollar of $US 1 to $TT 6.30 plus or minus .03 cents.

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8. Established Manufacturing Sector There is a well-developed manufacturing base both in the energy and non-energy sector. This provides vast potential for joint-venture cooperation, and the creation of backward and forward linkages. Non energy manufacturing has grown at an average rate of 8.6% over the last five years and in 2006 recorded a growth rate of 11.6%. 9. Stable Political System A significant factor for Trinidad and Tobago is its history of political stability. There are two major political parties in Trinidad and Tobago and Governments have changed on three occasions without jeopardizing the country’s enviable history of stability and the predictable environment for investment. 10. English Speaking Trinidad and Tobago was under Spanish rule between 1498 and 1797, during which period there was also a strong French influence. This as followed by British rule as a colony of the Empire until independence in 1962. Our political and educational institutions clearly depict this influence. The country is therefore English –speaking though evidences some Spanish and French customs. While our English orientation is a positive factor, especially in respect of investment from English language locations or those seeking an English speaking labour force in the time zone in which the country is located, we have deemed Spanish as our first foreign language as we seek in the medium to integrate our economy into Latin America. 11. Access To Wide Array of Markets

Trinidad and Tobago is part of CARICOM which has an estimated population of 14 million. In addition, investors have access to a number regional markets as a result of agreements involving the Dominican Republic, Venezuela, Colombia, Cuba and Costa Rica. The latter contains provisions to be expanded into a CARICOM Central American Agreement. Discussions have also been initiated with Mercosur with the intention of negotiating an FTA.

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C. REGIONAL AND INTERNATIONAL ORGANISATIONS The country’s major regional and international obligations include participation in the CARICOM Single Market and Economy, the World Trade Organisation, deliberations on the Free Trade Area of the Americas, the Cotonou Agreement, and the Association of Caribbean States among others. 1. Caricom Single Market and Economy

Trinidad and Tobago, together with Barbados and Jamaica, were the first group of countries to sign the necessary protocols confirming their entry into the CARICOM Single Market. To date 12 member state countries have ratified the arrangement. The CSME is expected to create a single economic space for the establishment of business, production and trade in goods and services, and allow the free movement of the factors of production, particularly labour, and capital. It provides a market of 14 million people (6 million if Haiti is excluded), which is more attractive from a trade and investment perspective, than individual small island economies.

2. Cariforum EU/EPA The Cotonou Partnership Agreement (CPA) was signed in 2000 and the region is currently negotiating the trade component, which is called the Economic Partnership Agreement (EPA). This Partnership will constitute a template for a ‘new’ relationship between the African Caribbean Pacific (ACP) States and Europe for the next twenty years. The EPA replaces development and trade relations that previously existed for a quarter century through a series of Lomé Conventions. The regional EPA is viewed as a new trading arrangement which will be supported by effective developmental mechanisms that facilitate the Region’s ability to diversify and to achieve sustainable developmental practices that allow countries to trade in the global environment. The EPA will be a reciprocal trade agreement unlike the current preferential trade relationship that the ACP group enjoys with the European Union.

3. Association of Caribbean States The Association of Caribbean States (ACS) is comprised of 25 Member States and four Associate Members. Its aim is to promote consultation, co-operation and concerted action among all the countries of the Caribbean. The headquarters of the Organisation is located in Trinidad and Tobago and this country plays an active part in ensuring its

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objectives are fulfilled. The objectives of the ACS are consistent with Trinidad and Tobago’s which are, the strengthening of the regional co-operation and integration process with a view to creating an enhanced economic space in the region, preserving the environmental integrity of the Caribbean Sea and promoting the sustainable development of the Greater Caribbean. 4. Free Trade Area of the Americas The Free Trade Area of the Americas (FTAA) is envisioned as the largest free-trade area in the world, unifying all 34 democratic, independent countries in the Western Hemisphere, and one-sixth of the world’s population. It will compromise approximately 800 million people, and US$14 trillion GDP. Trinidad and Tobago is situated in an ideal geographic location to maximise the opportunities to be derived from an FTAA. This provides a tremendous pull factor also in the country’s objective of becoming the premier financial centre and transhipment hub for the Region. Trinidad and Tobago is the front runner as a candidate for the Headquarters of the FTAA… if or when it comes.

5. World Trade Organization Trinidad and Tobago has been a GATT Contracting Party since October 1962 and became a member of the World Trade Organization (WTO) on March 1, 1995. Like other developing countries, Trinidad and Tobago continue to use this forum to negotiate for the development of international trade rules that would generate equitable benefits for all participants. Thus far, there has been a general acceptance that the WTO rules need to have a developmental focus that incorporates the particular needs and circumstances of developing countries.

6. World Intellectual Property Rights Organization Trinidad and Tobago is a member of the World Intellectual Property Organization (WIPO), 1978 UPOV Convention for the Protection of New Varieties of Plants and the International Union for the Protection of Industrial Property. In accordance with its commitment to protecting intellectual property rights the country has enacted new Patent and Copyright Acts and legislation regarding trademarks and industrial designs.

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D. TREATY OBLIGATIONS 1. Double Taxation Treaties Trinidad and Tobago has double taxation treaties with a number of countries. These include the United States, Canada, the United Kingdom and Germany, Denmark, France, Italy, Norway, Sweden, Switzerland, and Venezuela. 2. Bilateral Investment Treaties The country also has investment protection and promotion agreements with United Kingdom, Cuba, the United States of America, Canada, Spain, the People’s Republic of China, South Korea, Germany Mexico and India. BIT negotiations with the Swiss Confederation have also been completed. There are BITs at different stages of negotiations with countries such as Kingdom of the Netherlands, Belgium, Mauritius, El Salvador, Italy and Argentina. The first bilateral treaty (BIT) was signed in 1959 (Germany-Pakistan) and since then, there has been a steady growth in the number of countries participating in BIT’s, according to UNCTAD. Most BIT’s include obligations not to expropriate property without compensation as well as provisions governing the repatriation of profits and the transfer of funds. They also include standards of non-discrimination on admission, establishment, and post-establishment phases of investment. In addition, they provide mechanism for settlings disputes between two contracting parties, and often also between an investor of one state and the government of the host state. UNCTAD finds that although assurances of this kind can contribute to the investment climate of the host country, especially with regard to countries with weak domestic institutions, the impact of BIT’s on investment flows should not be oversold. E. THE INCENTIVE REGIME In 2006, the incentives regime was adjusted by replacing some incentives with a low corporate tax of 25%. The following corporations are excluded from this policy:

• Petro-chemical companies, which will continue to be taxed at a rate of 35 percent;

• Energy (oil and gas) companies, which will continue to be taxed at 55 percent (of which five percent represents the unemployment levy).

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The list of incentives offered to investors fall under various pieces of legislation, including the following:

• The Fiscal Incentives Act, Chapter 85:01

• The Corporation Tax Act, Chapter 75:02

• The Income Tax (In Aid of Industry) Act\Various Finance Acts

• The Value Added Tax Act, 1989

• The Free Zones Act, 19 of 1988

• The Customs Act, Chapter 78:01; and

• The Tourism Development Act 1. Fiscal Incentive Act An approved enterprise will be granted exemption from customs duties and VAT on the construction of an approved project. Projects have usually been large-scale manufacturing within one of the three classifications 3 outlined in the Act, and are available only to locally incorporated companies. The tax exemption can be extended to dividends, which may be tax exempt and free of non-resident withholding tax on any taxes in excess of the investor’s tax rate on the dividend in his country of residence. An enterprise, which is resident in Trinidad & Tobago, may apply to the Minister of Finance under the Fiscal Incentives Act for the grant of approved enterprise status for the manufacture of an approved product. There is also a list of products excluded from approval.

This act, however, conditions the approval of incentives on the level of “value added” which is inconsistent with Article 2 of the WTO agreement on Trade Related Investment Measures which deals with the issue of national treatment and quantitative restrictions. This TRIMS article specifically mentions in paragraph 4 of Article III of the General Agreement on Tariffs and Trade (GATT) 1994 which underscores the need for the application of “treatment no less favourable” to like imported products. There also appears to be an inconsistency with paragraph 5 of Article III of the General Agreement on Tariffs and Trade (GATT) 1994. The latter prevents WTO members from applying

3 Group 1 Enterprise: Where the local value added to the product is at least 50% Group 2 Enterprise: Where value added is at least 25% but less than 50% Group 3 Enterprise: Where the local value added is at least 10% but less than 25%

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regulations “relating to the mixture, processing or use of products in specified amounts” and which requires “that any specified amount or proportion…be supplied from domestic sources.”

The illustrative list of the TRIMS further clarifies measures that are deemed to be inconsistent with the obligation of national treatment as outlined in paragraph 4 of article III of GATT. The list includes measures, to which compliance is necessary in order to obtain an advantage, and “which require the purchase or use by an enterprise of products of domestic origin.”

It is therefore recommended that any reference to value added as a criterion for an incentive should be eliminated. If this is not addressed it would also be inconsistent with the CARICOM Investment Code which also restricts member states from adopting measures that are inconsistent with the TRIMS.

It is also recommended that the services sector also be incorporated under this act. The list of approved machinery and products should therefore be amended to include those that are used in the service sub-sectors that the country may wish to develop. Some of these include information technology, film, music and entertainment, merchant marine, tourism, yachting and leisure marine. 2. Corporation Tax Concessions The corporation tax is currently 25% and there is a belief among many in the private sector that the rate could be reduced even further to replace the many incentives that are available but are wrapped in bureaucracy. The example of Ireland is often used to support the argument for one low corporation tax compared to a plethora of incentives. In Ireland the corporation tax is currently 15%, in Singapore it is 20% and Chile 17%. In Ireland the corporate tax rate was 10% which was revised upwards with no negative effects on the investment climate. Based on the experience of other countries and the recommendation from the business community, a further reduction in the corporate tax rate could be considered since this will be major incentive to investors especially national investors. 3. Approved Small Company A tax credit of twenty-five per cent (25%) of the chargeable profits is available to a small company approved by the Minister as an approved small company. To qualify, the company must:

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• be locally owned and controlled (nationals must beneficially own shares carrying more than one half of the voting power in the company and have the right to receive more than one half of the dividends or capital distribution).

• not be the result of the splitting or the reconstruction of an existing company, if incorporated on or after January 8, 1988.

• not have as a shareholder any other company holding shares either directly or indirectly through its nominees.

• maintain accounts audited by a member of the Institute of Chartered Accountants.

• have potential for creating permanent jobs.

• have at least five (5) permanent employees.

• make optimum use of locally produced raw materials.

Application is made to the Minister of Minister of Trade and Industry in writing and the credit is available for five (5) years from 1st January in the year the certificate of approval is granted. 4. The Income Tax (In Aid of Industry) Act Under the Income Tax Act, there is an annual wear and tear allowance of 10% of the capital expenditure on construction of a building or structure or in respect of capital improvements made on or after 1st January 1995. There are also annual wear and tear allowances on plant and machinery. In respect of plant and machinery acquired after 1st January 1995, there is the introduction of the pooling of such assets for the grant of wear and tear allowances. The allowance is calculated at the applicable rate to aggregate expenditure incurred on assets within a particular group on a declining basis.

The following concessions are also available:

• Initial allowances of 10% on erection of buildings and structures.

• Initial allowances of 50% on purchase of plant and machinery reduced in certain industries to 20%.

Annual allowances equal to 1/50th of the expenditure on building structures or 1/20th of the expenditure where a person carries on petroleum operations under license issued after 1st January 1970.

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• Annual allowances of a reasonable amount for wear and tear on plant and machinery.

• Oil refineries - annual allowances calculated by manufacturer on 120% of the expenditure.

• Investment allowance for capital expenditure in respect of production business on land equal to 150% of the expenditure, that is, 40% in year 1 and 20% in the following five years.

5. Import Duty Concession Full exemption from Customs Duties is available for imports of Machinery and Raw Materials in the following sectors:

• Agriculture • Equipment • Forestry • Fisheries • Petroleum • Hotel/Tourism

In the Manufacturing/Assembly sectors exemption from Customs Duties is available for imports as follows:

• Machinery and Equipment Free • Processing Raw material inputs 0% • Parts for assembly 0%

Products that have been granted duty-free treatment should be zero-rated, except those that are produced within CARICOM. This will eliminate the bureaucracy involve in accessing this incentive. 6. Profit Remittance and Capital Repatriation There are no restrictions on repatriation of capital, profits, dividends, interest, distributions or gains on investment. Repatriation may be effected through the commercial banking sector. There is the liability to pay withholding tax, where applicable.

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7. Free Zones The Free Zones Act 1988 (as amended in 1995) established the Trinidad & Tobago Free Zones Company to promote export development and foreign investment projects in a bureaucracy-free, duty-free and tax-free environment for prescribed activities. Free Zone enterprises may be established in any part of the country. They are 100% exempt from:

• Customs duties on capital goods, parts and raw materials for use in the construction and equipping of premises and in connection with the approved activity

• Import and Export duties, taxes or licensing requirements

• Land and Building Taxes

• Fees for Work Permits

• Foreign currency or property ownership restrictions

• Capital gains, withholding and value added taxes

• Duties on vehicles for use only within the Free Zone

Application to operate in a Free Zone is made on specified forms to the Trinidad & Tobago Free Zone Company ('the Company'). After recommendation by the Company, the Minister may by Order designate an area a Free Zone, the limits of which are defined in the Order. The Free Zone regime falls under the purview of the Ministry of Trade and Industry.

The first schedule of the Free Zone Act contains the list of activities permitted in a free zone. There are 12 activities4 and it is recommended that this be revised to include other activities which the country wishes to encourage. The expansion of the list of sectors will remove the apparent specificity of the activities in the free zones and therefore make the incentives applicable to these activities which are WTO compatible.

It is imperative also that the new approach to the provision of incentives, takes account of the current thinking on the efficacy of these measures. Considerable work has been done

4The list of activities are: warehousing and storing; manufacturing; transhipment; loading and unloading; exporting; importing; service operations (banking, insurance and professional services); packaging and shipping; processing, refining, purifying and mixing; constructing, altering, reconstructing, extending or repairing infrastructure or premises, equipping premises in a freezone; sale, lease, rental and management of a free zone land, infrastructure, premises, plant, and equipment; merchandising.

The 4th Schedule also contains a list of products excluded from a free zone and includes food, beverage, tobacco, cigarettes and petroleum.

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by UNCTAD in this regard. This body finds that in the mid-90’s more than 100 countries offered fiscal incentives to attract FDI, a trend that continues. In 2000 UNCTAD’S found that of 45 developing countries, 85% offered some kind of tax holiday or reduction of corporate income tax for foreign investment. The conclusion of UNCTAD on the question of whether firms are influenced in the decision-making by fiscal incentives is indecisive. It contends “Firms tend to assess investment opportunities, including relevant government policies, as a package. The level of tax and other obligations can influence that package but rarely will be enough to cancel out other factors, including more fundamental concerns about policy stability, the quality of infrastructure, and the quality of a workforce”. The same Report concludes: “A better strategy is to improve the overall investment climate thus reducing the pressure to compete on taxes. Tackling bottlenecks of particular concern to foreign investors (customs administration, property rights, security) will likely do more to make a location attractive and will benefit local firms, too.” F. COMPETITION POLICY Trinidad and Tobago is also aware that a clear, comprehensive competition policy is critical in an economy characterized by a liberalised trade and investment framework. The country currently has enacted competition law, which deals with among other things, the anticompetitive effects of restrictive business practices, the abuse of dominant positions and the administration of mergers and acquisitions. G. THE INVESTMENT APPROVAL PROCESS There are three (3) stages in the investment approval process:

• Screening of Projects – This the initial phase where investors communicate with officials of the relevant investment agency about their investment plan

• Obtaining Investment Incentive Approvals – Investors then seek to benefit from incentives that are available for their specific project

• Physical Approval – This is the implementation phase where the investor is guided by the investment agency on all the necessary approvals that are required.

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The procedure for obtaining physical approvals is the longest phase because of the different levels of approvals that are required. This includes first, the approval from the Town and Country Planning Division, Ministry of Planning and Development and secondly, the Regional Corporation in the district in which the construction will occur. These agencies may at times seek technical assistance from advisory agencies, which may delay the approval process. H. INVESTMENT PROMOTION AGENCIES

In World Development Report 2005, entitled A Better Investment Climate for Everyone, it is estimated that there are now 160 national Investment Promotion Agencies (IPA’s) and 250 sub IPAs compared with only a handful two decades ago. According to the Report “there is some evidence that IPAs can help countries to attract FDI. One study found that FDI increases by about 0.25% for every 1% in the IPAs budget”. This country’s investment promotion activities are shared among three main organizations:-

• Investments in the energy sector are spearheaded by the National Energy Corporation.

• Evolving Technologies and Enterprise Development Company Limited (eTecK) is responsible for encouraging business development in the non-energy sector, including ICT, knowledge-based and down stream energy industries.

• The newly formed Tourism Development Corporation (TDC) is responsible for all marketing and promotion activities for the tourism sector.

OTHER STATE AGENCIES AND COMPANIES 1. The Tobago House of Assembly The mandate of the Tobago House of Assembly includes the promotion and facilitation of investment in Tobago. The promotional activities are an addition to those undertaken by the national investment promoting agencies. These activities are also linked to the national socio-economic objectives which include the diversification of the economy, employment generation, and the attainment of developed country status, among other things.

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2. The Ministry of Trade and Industry The Ministry of Trade and Industry in furtherance of the Government’s objectives of diversification and growth of the economy, pursues a number of targeted initiatives aimed at the transformation, development and expansion of the Non-petroleum Sector. Strategies aimed at developing and expanding the Manufacturing and Services Sub-sectors include sector development initiatives, which seek to assess and identify the future competitive advantage of seven (7) targeted sectors. The Ministry’s participation in various negotiating fora also provides opportunities for increased market access to companies located in Trinidad and Tobago. 3. National Entrepreneurship Development Company National Entrepreneurship Development Company’s (NEDCO’s) mandate includes a focus on micro business (five employees, with not more than $250,000 in assets or in sales), by providing primarily funding and training and development. As of November 2006, the company had assisted approximately 6,500 individuals to start-up or expand their businesses. NEDCO’s Entrepreneurial Training Institute & Incubation Centre also provides a range of critical services such as business advice, mentoring, business information, technology, training, entrepreneurial development, and research and planning. 4. Business Development Company Limited (BDC) The Business Development Company’s (BDC’s) mandate includes a focus on providing technical and financial support to Small and Medium sized Enterprises (SMEs), to enable them to grow and to become internationally competitive. The Company’s technical assistance programmes focus on training for management and entrepreneurial development, the provision of project management and company-specific consultancy services for business growth, enhancing efficiency and productivity through support for Quality, health and safety and environment systems development, Gap Analysis Programme, Good Manufacturing Practice, Hazard Analysis Critical Control Point and lean manufacturing programmes; and supporting e-commerce developments. BDC provides loan guarantees of up to 85% to a maximum of $500,000 (but has recommended an increase in the limit to $1.5 million) for the acquisition of working capital through financial institutions in the country. The Company has issued 5,190 guarantees to date, valued at TT$130 million and covering loans of over TT$250 million.

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BDC’s wholly owned subsidiary, Caribbean Leasing Company Limited (CLCL) provides financial leasing for the acquisition of capital equipment for plant expansion, modernization and upgrading at a minimum value of $25,000 and with no upper limit. One hundred and fifteen companies have been approved for leases with a total value of over TT$35 million. The Company’s objective is to provide at least $15 million in leases every year. 5. Venture Capital Incentive Programme (VCIP) The Venture Capital Incentive Programme (VCIP) was created in direct response to the need to provide financial capital and managerial support to Small and Medium-sized Enterprises (SMEs). The major role of the company is to administer and facilitate activities related to raising capital through the private equity industry, both locally and regionally. The organization is also a regional integrator of private equity resources and entrepreneurial activity. VCIP administers a tax credit incentive which is equal to the highest marginal rate of tax, currently 25%, to investors of registered venture capital companies. The VCIP has facilitated firms in raising approximately TT$15M in equity capital from individual and institutional investors and by the end 2005, venture capital companies had invested TT$5.3M in ten businesses. 6. Trinidad and Tobago Bureau of Standards Trinidad and Tobago Bureau of Standards (TTBS’s) mandate includes ensuring that goods and service produced and/or used in the country satisfy criteria of good performance established by the Bureau. Its services include: certification; inspection and monitoring; standardization; testing; metrology; lab accreditation; and testing.

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CHAPTER 2: THE WAY FORWARD- A NEW APPROACH TO INVESTMENT

PROMOTION AND FACILITATION

The new approach goes beyond addressing the identified inadequacies of the Foreign Investment Act, 1990. It attempts to develop a framework that not only accords with the new dispensation but also allows Trinidad and Tobago to be competitive in its promotional efforts. The major pillars in the structure of the policy include:

• A focus on the overall objective of the country;

• Promotion of investments;

• Consistency with our commitments in international and bilateral agreements and the changing environment in which firms operate; and

• Determinants of the policy space of the government The policy takes into consideration the need to balance the promotion of FDI with the capacity of the domestic market. It adopts the position that the profit driven motive of TNCs need not be incompatible with the needs of host countries even in the current environment of increased liberalization. For instance, even in the extreme case where it is argued that there are no positive externalities resulting from foreign investment, the cost of restricting these investments could still make the economy worse off. The conclusion therefore is for the adoption of an intelligent approach and that government intervention should take place only if it could result in greater social and economical gains. This is predicated on the assumption that the government has the capacity to design and implement such policies to ensure better results than would be derived from an investment policy that merely supports foreign direct investment per se. Successful economies all over the world reveal decreasing government involvement in business and Trinidad and Tobago has also successfully followed a similar strategy. The example of other countries has shown that Government’s involvement in business is limited to certain key, strategic and cultural industries. The recommended approach, therefore, is for the creation and implementation of effective policies that target and address the inefficiencies in the market. This does not mean adopting a restrictive policy. In the final analysis, if the cost of government failure outweighs the cost of market failure then the economy will be worse-off.

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This country’s investment regime will continue to place priority on stimulating entrepreneurship, increasing industrial expansion and services, as well as the promotion and diversification of exports. The dual mechanisms for achieving these aims include the attraction of foreign investment and the stimulation and encouragement of domestic investment. This policy is based on the understanding that a continuous flow of new sustainable investment that is linked to the development focus of the country will ensure that the objective of creating a dynamic, diversified and competitive non-energy sector is achieved. It is firmly believed that investments, aided by the requisite conducive framework, will maximize the effective utilization of economic resources and improve the living standards. Trinidad and Tobago’s investment promotion strategy has been influenced, among other things, by the desire to increase the level and quality of investments. This trend will continue. However, the approach will be a more focused one with a differentiated basket of incentives recommended for the promotion of different sectors. The adage of “one size fits all” is not effective in the current dynamic and increasingly competitive environment. In light of this approach, it is recommended that the Foreign Investment Act, 1990, be repealed and replaced. Further, in light of the need to streamline Trinidad and Tobago’s incentives regime, it is recommended that other pieces of legislation especially those that deal with incentives, be amended and included in the Foreign Investment Act. The new Act will also have to take into consideration Trinidad and Tobago’s commitments under the Revised Treaty of Chaguaramas and the unique circumstances of Tobago. Moreover, with respect to the latter, a general exceptions or reservation clause applicable to Tobago may have to be drafted. Other Elements of the New Bill Firstly, it is envisaged that new legislation will replace the Foreign Investment Act of 1990. This new legislation will include elements not previously addressed. These include such issues as national treatment, transfers, key personnel and dispute settlement. It will also have to take into consideration Trinidad and Tobago’s commitments under the Revised Treaty of Chaguaramas and the unique circumstances of Tobago. With respect to the latter, a general exceptions and reservations clause applicable to Tobago may have to be drafted. This is consistent with bilateral and international agreements, which make allowances or grants special and differential treatment to depressed or lesser developed regions both within and among countries.

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Among the key elements of the new legislation are the following: 1. Definition of Investment An asset-base definition5 of investment will be adopted with an illustrative list indicating the types of activities that will be considered as an investment. 2. Definition of Investor A foreign investor means (a) an individual who is neither a citizen of CARICOM nor of Trinidad and Tobago nor a resident of Trinidad and Tobago (b) any firm, partnership or unincorporated body of persons of which at least one half of its shareholdings is held by persons who are neither a citizens of CARICOM nor of Trinidad and Tobago nor residents of Trinidad and Tobago; or (c) any company or corporation that is not incorporated in Trinidad and Tobago or if so incorporated, is under the control of a person to whom paragraph (a) or (b) applies or is deemed to be under the control of a foreign investor. 3. Key Personnel The employment of foreign natural persons is governed by the Immigration Act (Chap.18:01) and any amendments to this Act which may arise from the recommendations of the Work Permits Committee. The current framework provides for the employment of managers, executives, specialists and experts. That is, those employees who may be considered indispensable to guarantee the proper control, administration and operation of an investment. These employees are granted work permits for a period of two years. The Work Permit Committee is considering changes to the process of granting of work permits including removal of the need for a work permit for a foreign investor with a minimum size of investment of US$250, 000. 4. Incentives

The Trinidad and Tobago incentives regime would be WTO-compatible. The challenge would be to move away from the position of providing general incentives to one where sector specific incentives become the norm while maintaining the WTO compatibility.

5 This is common in all modern agreements compared to an enterprise-based or transaction-based definition and is generally preferred by countries wishing to encourage investment flows.

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These incentives therefore would have to be developed in accordance with Article 2 of the TRIMS agreement. In addition, the current policy of granting allowances for accelerated depreciation, training, and duty-free exemptions should continue. 5. Land Ownership A foreign investor would be free to purchase land for both residential and commercial purposes. A license for such purchase will only be required under the following conditions:

• If one parcel of land for residential purposes exceeds 3,716.12 square metres (one acre)

• If a parcel of land for commercial or industrial purposes exceed 20,234.30 square meters (five acres)

Construction must commence within twelve (12) months from the date of the granting of a license. In cases where the investor is unable to fulfill the requirement of the license, an application for an extension should be submitted to the Minister of Finance. The Minister may grant an extension for a further period of eighteen (18) months. The application for an extension is a simple process, which requires the completion of a prescribed form. THERE WILL BE TWO EXCEPTIONS TO THE LAND USE POLICY:

1. The Minister of Planning will reserve the right to prioritize the use of the land for particular investments or sectors.

2. Issues related to land ownership in Tobago would fall under the purview of the

Tobago House of Assembly (THA). This institution may impose additional requirements related to land ownership however these would not be inconsistent with what is stipulated in the investment policy. The additional measures for instance may include restrictions on the length of ownership before resale, and the type of activity to be undertaken on the land.

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6. Share Ownership Currently a non-national cannot acquire more than thirty percent (30%) of any company without approval from the Minister of Finance. This limit will be reduced allowing non-nationals to acquire up to 49% shares without the need for a license.6 There will also be no need for obtaining a license for the purpose of incorporating a company. In both cases, the investor will simply be required to complete and submit a prescribed form to the Minister of Finance. This form will contain a request for routine personal and investment-related information such as name, address and purpose the investment. This will be used for statistical purposes. 7. Transfers The country prescribes to the free transfers related to an investment. Foreign investors are free to transfer funds in a freely convertible currency and in accordance with the domestic laws of Trinidad and Tobago. Such transfers may only be prevented under the following conditions:

• to protect the rights of creditors in cases of bankruptcy, insolvency or criminal or penal offences;

• ensuring the satisfaction of warrants, or court orders in judicial or administrative proceedings;

• non-fulfilment of tax obligations; and

• non-fulfilment of labour obligations. In addition, in the case of balance of payments difficulties transfers may be temporarily restricted in accordance with recognized International Agreements and in a manner that is equitable, non- discriminatory and in good faith. 8. Expropriation Investments, including returns on investment shall not be nationalized or expropriated except for a public purpose.7 Whenever this occurs however, it must be done under due process of law and in a non-discriminatory manner. It will also be followed by prompt, adequate and effective compensation which will be determined through negotiation between the Parties.

6 The Minister of Finance will reserve the right to exempt certain sectors from the application of this rule. 7 A public purpose relate to measures that may become necessary in order to protect public morality; prevent crime and maintain public order; protect or maintain essential security interests; protect human, animal and plant life; protect the balance of payments and react to balance of payments difficulties; protect disadvantaged persons or communities; protect national treasures of artistic, historical, anthropological, paleantological and archaeological value etc.

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Provisions against unlawful expropriation are therefore guaranteed to investors. In fact, a minimum standard of treatment, in accordance with international law, is provided for in the Constitution of Trinidad and Tobago. 9. Dispute Settlement Trinidad and Tobago supports Investor-State Dispute Settlement. This mechanism for settling disputes is incorporated in the various Bilateral Investment Treaties (BITs), which h Trinidad and Tobago has signed with other countries. Investor-State Dispute Settlement also has become an integral part of all the modern BITs and is also incorporated in the CARICOM Investment Code. ADDITIONAL ELEMENTS OF THE NEW APPROACH 1. Adding Domestic Value It is intended that the new investment policy be influenced by what UNCTAD refers to as “the Third Generation of investment promotion policies”. This approach “takes the general enabling framework of FDI and a proactive approach toward attracting FDI as a starting point. It then proceeds to target foreign investors at the level of industries and firms and in the light of a country’s development priorities. The objective is to match the immobile locational advantages of a country with the mobile competitive advantages of firms with a view to upgrading the former” (World Investment Report 2001). Over and above attracting FDI, it is Government’s policy to ensure that there is positive value added to the broader economy. It is critical, in this regard, that FDI is utilized to develop local industry and to promote technological transfer. This does not necessarily happen automatically and in the past countries have adopted various measures to ensure that domestic value added is maximized. Among these have been: import restrictions, local content requirements, and joint venture requirements. Local content requirements, for example have been used to ensure that foreign investors use inputs from local firms. UNCTAD has found that local content requirements have not only increased the costs of FDI, reducing the foreign investors’ incentives to enter and expand promotion, but are also inconsistent with international trade rules and therefore are being phased out.

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Joint venture requirements which mandates foreign investors to participate in joint ventures with local partners. In some cases, these requirements have been used to benefit specific local firms by allowing them to participate in lucrative foreign investment, but they are also intended to increase technological spillovers. UNCTAD reveals that these measures “may deter rather than encourage investment, and they can make firms wary about using advanced or sensitive processes, reducing rather than enhancing spillovers”. Proffered by this organization as successful “linkage programs” are the Singapore Local Industry Upgrading Program and the Ireland National Linkage Program. The programmes in Singapore and Ireland, it is contended, “share two characteristics. First, they are market-based, creating fewer distortions that impose content requirements. Second, they combine policy advocacy, proximity to suppliers and specific linkage opportunities”. This recommendation would apply to the services sector which countries exempt from the purview of WTO regulations. The tourism sector currently contains a policy of reserving investment in small hotels or guesthouses of twenty-one (21) or fewer rooms, for nationals of Trinidad and Tobago. A similar policy could be applied to such sub-sectors as real estate, finance, construction, and catering, among others. 2. Earmarking Emerging Sectors Trinidad and Tobago has a sound industrial base from which to leverage the move into more value added activities. In addition, one of the key mandates of the government is to create sustainable economic growth through diversifying the non-oil sector, primarily through driving industrial and services investments. To this end the Government has identified seven industrial sectors for focused development. These are:

• Food and Beverages

• Printing and Packaging

• Merchant Marine

• Film

• Music and Entertainment

• Fish and Fish Processing

• Yachting

Strategic plans have been created for development of the identified sectors. There is a need to now identify and/or develop investment projects based on these plans, in which the private sector could invest.

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3. Innovating Investment Promotion With the re-assigning of the mandate for the investment promotion to eTecK, a new opportunity has been provided to establish new direction to the past approach. Mindful, of what UNCTAD refers to as: The “third generation of investment promotion policies” eTeck is proposing “To develop and implement a comprehensive strategy for Investment Promotion using internationally benchmarked strategies and implementation methods and tools. The objective is to ensure that Trinidad and Tobago’s business offering i.e. as a location for investment and as a source for high quality goods and services, is publicized internationally and there is a consequent increase in the foreign direct investment in the non-energy sector in Trinidad and Tobago”. The activities in response to the mandates are to be implemented over three (3) years in the first instance. According to eTeck this period will allow for the completion of the investment life cycle, from promotion to implementation and is consistent with the timeframe for securing and implementing an investment project. Suitable messages on Trinidad and Tobago’s business environment will be developed and disseminated using appropriate international media including website communication. Promotional activities will be at two (2) levels: (1) Country level – the promotion of Trinidad and Tobago and all it encompasses (image building/brand development and promotion) and (2) Sector level – the promotion of specific business opportunities developed from specific sectors (investment generation/targeted sector promotion). There will also be an emphasis on the development of a portfolio of promotional material and information to support the investment generation activities. The availability of databases of information on business opportunities, sector studies and market intelligence reports are critical to providing investors with information for use in their decision making. Focusing on “third generation investment promotion policies” pre-supposes that investment promotion is best accomplished by directly targeting potential investors based on a predetermined set of sector-specific and company-specific criteria. The significant elements of this project are as follows:

1. International Public Relations Campaign- Brand Development and Delivery

2. Development of Promotional Materials

3. Organization of International Investment Marketing and Sector Missions

4. Provision of Investor Services

5. Special Projects/Signature Events

6. Institutional Capacity Building/Networking UNCTAD contends that there are success stories amongst IPAs the most notably being those of Singapore, Ireland, Costa Rica, Mauritius, Dominican Republic, and Malaysia – but concedes that this has been costly per capita, especially at the image building stage.

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4. Expediting the Approval Process UNCTAD reveals that in many countries the approval process involves a number of agencies: one to register the business, another to register taxes, another to obtain environmental approvals, another for health and safety clearances, another for work permits, etc. Trinidad and Tobago is no exception in this regard. The following have been identified as the key factors having an impact on investment decisions:

• The absence of sector specific incentives and legislation for desired growth engines of the economy.

• A general lack of co-ordination among Government agencies.

• The slow approval process at the Town and Country Planning Division

• The inefficient process of generating leases from the Commissioner of State Lands Division of the Ministry of Agriculture

• A lack of clear criteria for multiple agencies to evaluate and screen proposed projects.

• Too many antiquated laws, regulations, systems and procedures which have a negative impact on the investment process.

• A culture of control, prevention and prevarication instead of encouragement and facilitation.

On the basis of an examination of best practices among investment facilitation agencies in a number of countries, in particular, the Georgia Resource Center and the State Office of New York Governor’s Office of Regulatory Reform, it has been recommended that the Government of Trinidad and Tobago establishes a Business Information Centre (TTBIC). This entity will be set up within the Investment Promotion Department of Evolving TecKnologies and Enterprise Development Company Limited (eTecK) and is intended to be an effective mechanism to communicate and disseminate information on Trinidad and Tobago to potential and existing investors; assist in streaming the regulatory processes for the implementation of an investment project and offer advice to investors on regulatory procedures; and operate as a site selection facility. 5. Improving Training to Create Future Entrepreneurs

Another aspect of the new approach will focus on the training of a new cadre of entrepreneurs, as well as address the needs for providing expertise in fields such as science and technology, applied research, management and languages.

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With the establishment of the University of Trinidad and Tobago the provision of a pool of skilled persons in these and other areas is expected to increase in the short to medium term. It is also recommended that a course in “entrepreneurship” be introduced in the Secondary School curriculum. 6. Focusing on Current Investors In identifying potential investors, the domestic environment serves as good starting position. Current investors should be asked for references and contact persons from other organizations who can be targeted as a potential investor. Companies associated with current investors should also be targeted. This includes companies that supply various inputs and services to investors already located in the country. The companies’ competitors should also be targeted since they may be very conducive to a package that will allow them the opportunity to be close to their competitor. 7. Enhancing Communication

Access to information on incentives and opportunities, sectoral trends, market developments and trade agreements and the like is often an inhibiting factor for local firms in taking advantage of investment opportunities. Through the more efficient use of information technology, it is expected that actors like Ministry of Trade and Industry (MTI), Evolving TecKnologies and Enterprise Development Company Limited (eTecK), Tourism Development Company (TDC), and Business Development Company (BDC), amongst others, will be able to provide qualitative information in a more timely manner to enable especially Small & Medium-sized Enterprises (SME) to develop capacity.

8. Providing Finance For New Enterprise

Access to finance has been a critical success factor in growing internationally competitive businesses. Traditionally, in demanding high levels of collateral, the commercial banking sector has been risk averse in respect to financing new enterprises and even with regard to financing the manufacture of new product lines or penetrating new markets. A new approach to investment would involve the provision of more risk-inclined financing.

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NEDCO’s function can be described as risk-inclined in their policy of lending to new and existing micro enterprises. This type of financing should also be incorporated in BDC policy which involves providing a guarantee to the banks on behalf of small, medium and large firms. Finally, use of the VCIP needs to be encouraged through a vigorous campaign that addresses current perceptions and also educate the business community of the benefits of the programme.

A new development in reference to financing of Research and Development (R and D) is the Research and Development Facility (RDF) administered by the BDC, which targets business enterprises, which need to acquire specialized technology or introduce ideas in business in order to improve competitiveness and profitability. 9. Participating in Conferences and Trade Fairs

The staging of international trade and investment conferences and participation in trade fairs also contribute to the capacity of local enterprises, and, more importantly, to the attractiveness of the investment climate. Conferences allow participants to share experiences of overcoming business challenges and also provide a platform for successful companies. By showcasing the opportunities for trade and investment that are available, conferences, like Euromoney in 2005 and the annual TIC, help to expose local companies internationally, and to promote Trinidad and Tobago as a preferred destination for investment. Similarly, participation in trade fairs, allows domestic enterprises exposure to the international market place in providing an opportunity for them to interact with a wide range of participants under one roof. Experience and knowledge garnered from these trade fairs could assist the private sector in product development and identifying niches, market penetration and line extensions. 10. Using Foreign Missions and other Foreign-Based Organisations The new approach envisages the greater utilization of Trinidad and Tobago’s foreign mission and its network of Honorary Consuls in fulfilling this objective. Other foreign-based organisations cold also be utilised such as the Trinidad and Tobago Chambers of Commerce in Miami and the Dominican Republic and the Trinidad and Tobago Business Association in New York. Another option would be to assign trade and investment consuls at foreign missions who would be charged with the responsibility of promoting this country as a preferred destination for investment and identify new markets for its goods and services.

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CHAPTER 3: CONCLUSION

In the World Development Report 2005 (already cited) the following dramatic statement is made: “More governments are recognizing that their policies and behaviours play a critical role in shaping the investment climates of their societies, and they are making changes. China and India provide compelling examples: investment climate improvement in these countries has drawn growth and the most dramatic reductions in poverty in history”. Underlying “The new approach” is the objective of fostering an investment climate which will be more competitive and more efficient. It is acknowledged that remarkable success has been garnered in transforming the energy sector, in which this country’s achievements have been exceptional. The “Trinidad and Tobago model” is globally recognized by energy players. The challenge, however, is to emulate this success in the non-energy sector. Among the main instructive points made in the above-cited Report are three:

1. That the goal should be to create an investment climate that is better for everyone in this dimension. The investment climate should benefit society as a whole not only firms. Secondly, it should embrace firms of all types, not just large or influential ones.

2. That efforts to improve the investment climate need to go beyond just reducing costs. A more comprehensive approach would also focus on policy-related risks and barriers to competition.

3. That progress requires more than changes in formal policies and that there are often times huge gaps between policies and implementation. Success is often predicated on the extent to which those gaps are bridged. This might involve changing deep-seated behaviour of corruption, nepotism, and insider trading and the like.

The recommendation to reform the investment regimes are made having regard to the considerations mentioned above. The focus here is threefold:

• Consolidating Trinidad and Tobago’s investment regime which requires an updating of the Foreign Investment Act to include elements excluded from previous legislation;

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• Maximizing the benefits of FDI which can accrue locally; and

• Reforming the facilitative environment to promote greater competitiveness and efficiency;

It is expected that a reform of the foreign investment regime will lead to a reversal of the downward trend in non-energy investment.